J.P. Morgan Reiterates Neutral on GeoEye (GEOY)

J.P. Morgan is out with a research report this morning, where it reiterates its Neutral rating on GeoEye Inc. GEOY; it has a $41.00 price target on the name. The JPM analysts cited the US National Geospatial Intelligence Agency’s (NGA) recent announcement that GEOY has been awarded (along with DGI) a contract under the long-anticipated EnhancedView program. GEOY received a $3.8 billion contract for up to ten years, including up to 40% funding of the GeoEye-2 satellite; the awards are far bigger than we expected and JPM thinks the stocks should react positively. They added, “Aside from the upfront funding, we assume very little financial benefit to GEOY from the contract (~$1mm/month in revenue). We assume the EnhancedView SLA will continue at the same run-rate, growing 5% annually, as current US government purchases until GeoEye-2 is commissioned in early 2013. Assuming a WACC of 11%, the contract has an NPV of ~$218mm, or $10 per share. The JPM analysts further noted, “Our updated DCF analysis indicates a share price of ~$51 for GEOY; however we are sticking with an EV/EBITDA-based valuation with a nearer term perspective.”